This blog is mostly devoted to discussing educational policy issues and politics in Utah. This is meant to be a place to gather my research and thoughts into detailed explanations that hopefully add clarity to the discussion of public education. Many of the issues are multi-faceted and need to be examined thoroughly. Thus, some posts will be boring long. Come here looking for what I now understand. I will re-organize and readdress issues as I learn more.

Monday, February 20, 2012

More on why Tuition Tax Credits may be more profitable for interested parties than simple vouchers

First, the difference between a private school tuition voucher and a Tuition Tax Credit for donating to a private school tuition scholarship fund is only when the money comes out of the General Education Fund. The money comes out of the exact same place. Do not believe any claim that the two are substantially different in how they affect available funds for public education.

The money depleted from public education funds is the same; there is, however, a major difference in who saves money on the two proposals.

Vouchers - 1. Everyone pays state income tax to the General Education Fund. This money has to be used for public education or higher education. It can be used for no other purposes. 2. The state issues vouchers from that fund to private schools to subsidize up to a certain amount of the tuition of individual students who qualify. (The 2007 voucher amount was $3300 in an attempt to make it more palatable to the public; most proposals try and make it higher.)

Tuition Tax Credits - 1. Everyone pays state income tax to the General Education Fund. This money has to be used for public education or higher education. It can be used for no other purposes. 2. During the year, individuals or corporations make donations to private school tuition scholarship organizations of up to $500 for single filers or $1000 for joint filers. 3. Those organizations issue scholarships to subsidize up to a certain amount of the tuition of individual students who qualify. (Stephenson's 2012 bill, SB 151, set the caps at $5500 for these scholarships.) The difference:4. Those who donated receive a dollar for dollar tax credit from the General Education Fund when they file, not a tax deduction, for their donations up to those limits.

Think about that. Utah's flat tax is 5%. So the most the donor would have otherwise paid in taxes for that $1000 in income is $50 (or $25 for a $500 donation) before any other deductions. The donor not only saves the $50 they would have paid into the education fund, but gets the $1000 credit free and clear, which is equivalent to the amount of income tax (which goes exclusively into the General Education Fund) they would have paid on income of $20,000. They presumably also receive the normal tax deduction for charitable giving for any donations exceeding those limits, simply not paying taxes on that donated income.

So the money to subsidize private school tuition comes out of the education fund under either mechanism, vouchers or Tuition Tax Credits. But the Tuition Tax Credit plan also allows the relatively small pool of private school scholarship donors, who would also largely overlap with political supporters of Howard Stephenson and/or secret clients of his Utah Taxpayer's Association, to save the equivalent of paying state income tax on $20,000 of income.

My post last year on Tuition Tax Credits, when Carl Wimmer ran the same idea, included a Dilbert comic about a "Dutch Sandwich." The sandwich for the rest of us makes even more sense now as I analyze the financial impact Tuition Tax Credits would have. Stephenson claimed in the pre-legislative session I attended that Tuition Tax Credits would have a positive financial note because it would save money per student. That is a lie as I explained in detail recently. Whatever examples Stephenson cooks up in his interim study of other states, realize who is really profiting from these "reform" schemes based on dollars rather than research or concern with true education of all students.